Characteristics of Cryptocurrency
We know that cryptocurrencies have some technological advances over regular USD, but can it replace it? Let’s see what are some cryptocurrency advantages over regular money like dollar or euro?
Cryptocurrencies are designed to reduce unnecessary transaction fees by removing intermediaries. Ecosystems are based on the blockchain technology which is very secure and enhances the privacy of a user. Where users are not using real names but pseudonyms which are usually set of alphanumeric figures that are randomly generated and very hard to associate them with others. Cryptocurrencies are usually decentralized which means there is no political risk associated with them and nobody has control over money supply or interest rates as opposed to banking systems. When the transaction is made it cannot be undone as opposed to Central Bank that could potentially reverse some transactions.
There are over 1400 different active cryptocurrencies, which seems a lot. The creation of a digital money is far less expensive than setting up physical infrastructure to produce and manage dollar or euro. In the cryptocurrency, there is just software, which is using social science to nurture the currency. As one can tell by comparing the names of different cryptocurrencies that creator is using their imaginations in creating logos or names. Like the Coinye which is featuring a logo Kanye West as a fish. Authors were inspired by one of the South Park episodes. Unfortunately, this coin was discontinued and is no longer active. You can also find coins such as: Putin or Donal Trump. Those coins are just copies of Bitcoins and they don't bring anything new to the world. In fact almost 90% of all alt-coins are shit. I will write about it in a separate post.
Let's talk about what Bitcoin is. This is a decentralized, independent of any particular entity, virtual currency, operating on peer-to-peer networks. It has been since 2009 and was created by a person or group with the nickname Satoshi Nakamoto. Bitcoins are obtained in a complex process of "mining". "Miners" are rewarded with newly created Bitcoins for transaction verification. What is important in the Bitcoin system is that this process enables the extraction of a predetermined number of Bitcoins at a given time and their maximum possible quantity is set at 21 million. On the graph, one can see the predicted amount of Bitcoins in time. This means that the Bitcoin supply is growing more slowly and when the amount reaches 21 million it will stop.
Bitcoin vs. Money
Does Bitcoin pose key characteristics of money? Some of the key characteristics of money as defined by XX are durability, portability, divisibility, uniformity, limited supply, acceptability, availability. Bitcoin ecosystem works as a medium of exchange and payment system, but it is not quite universal. Internet access has about 40% of the world population, making it difficult for the cryptocurrency worldwide to prevail. It is a measure of value because Bitcoin holders can value a service or product with Bitcoins. It has a digital form, so individuals can say that it is durable, since it can be stored on the servers. It is easy to carry if one have the internet on your phone. However one may have a problem when he or she finds itself in a place with no Internet access. This digital currency is a uniform because one Bitcoin is worth as much as another Bitcoin, and divisible because one can only send some fraction of a Bitcoin. It has also been designed to store value over a long period of time, due to a strictly defined supply and a maximum specified quantity. It has a built-in deflation mechanism, which some may consider being a great advantage for fiduciary money. With the assessment of its stability in the long run investors still, have to wait. Since its inception, Bitcoin has been able to change very rapidly, but it is hard to name it volatile currency since it has a short existence.
To sum-up, Bitcoin can be defined at this moment as a medium of exchange. The status of money lacks universal acceptance, availability and long-term stability.
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